Reference no: EM132482317

The Law of Comparative Advantage or Cost. Choose the best multiple choice answer:

Q. Individual A has an absolute advantage over individual B in the production of goods M and N. check the production matrix at the end of this question.The relevant substitution ratios for the production of good N are: M=5/7N and M=10/8N.  Individual A should produce good M. Why?

Production Matrix:

M N

A 5 hrs. 7 hrs.

B 10 hrs. 8 hrs.

a.) Individual A may produce either good M or N because no comparative advantage exists. It does not matter whether or not one produces one of the goods in a social division of labor or in an isolated labor setting.

b.) Because (N=7/5M) > (N=8/10M) individual A has a comparative advantage in the production of good M and therefore should produce M.

c.) Because [(M=5/7N) + (M=10/8N)] > [(N=7/5M) + (N=8/10M)] individual A should produce good M.

d.) Because (N=7/5M) < (M=5/7N) individual A should produce good M.